Employer-Provided Transit Benefit for Employees

In 2014, taxpayers were allowed $130 per month in employer-provided transit and vanpooling benefits under Code Sec. 132(f)(2)(A). The Tax Increase Prevention Act of 2014 retroactively changed the monthly exclusion from $130 to $250. The new rate applies to the entirety of 2014 and will force employers to act quickly to make adjustments to 2014 tax forms. The IRS has issued a special administrative procedure for the fourth quarter of 2014, which will allow employers to avoid filing Form 941-X for each quarter as well as form W-2c (Corrected Wage and Tax Statement).

What does this mean for taxpayers? Any taxpayer that used the benefits will be “made whole” by their employer on their 2014 W-2 or W-2c. The employer will need to recalculate your taxable income based off the increased pre-tax deferral. For example, let’s say you utilized the $130 per month pre-tax contribution every month in 2014, but, in reality, you spent $250 or more per month in qualified expenses. If you are in the 30% tax bracket (federal and state combined), you will be seeing over $400 in savings.

Make sure to check your W-2 when you receive it from your employer if this applies to you. If it is not reflected in your W-2, you should be receiving a W-2c from your employer that reflects the appropriate change.